Website credit rip-offs exposed by sweep

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More than two-thirds of European websites offering consumer credit contracts are falling short of standards required under EU law, according to a widespread pan-European investigation conducted in September last year.

National enforcement authorities conducted a 'sweep' of more than 500 websites across the 27 member states plus Norway and Iceland and flagged up 70% for further investigation.

The main problems lay in advertising failing to include standard information, key information such as interest rates on repayments being omitted from the sites, and the misleading presentation of costs.

The national enforcement authorities will now contact the financial institutions and credit intermediaries involved about the suspected irregularities and ask them to explain themselves or to take corrective action.

On-line credit market is huge and growing

The sweep operation focused on how business is applying the Consumer Credit Directive – recently transposed in the member states – which aims to make it easier for consumers to understand and compare credit offers.

The European on-line credit market is huge and growing, in 2010 financial institutions in the eurozone had more than €600 billion outstanding consumer credit on their books.

Almost half (46%) of websites checked were lacking information required under the Consumer Credit Directive.

The directive requires websites to offer annual percentage rates as standard information – deemed essential to enable consumers to compare the value of offers – and details of any further charges and of the services to which they relate.

A fifth of all the websites checked contained more seriously misleading presentations of costs. This might include the credit payment being displayed in such a way to dupe the consumer, for example including hidden insurance charges as part of the overall cost without making any effort to explain this.

Offending websites could face closure

Consumer group BEUC said that member states must step up their supervision of websites offering credit. The group’s director-general, Monique Goyens, said: “Laws to protect consumers do not have any effect when they are not properly implemented. Unfortunately, BEUC findings clearly show an intolerable lack of financial supervision in too many member states.”

Websites which fail to account for their behaviour to national authorities over the next few months will be subject to legal action, fines, or possible closure. The nature of the sanctions depends on the legislative framework in each member state, however.

The national enforcement authorities will report back to the Commission by autumn this year, and the Commission will then report on the results.

“When people look for credit they sometimes discover that this credit turns out to be more expensive than it had originally appeared, because important information was sometimes unclear or missing” said EU Consumer Commissioner John Dalli.

“Consumer credit is not always easy to understand, which is why there is European legislation in place to help consumers make informed decisions. It is therefore very important that businesses provide consumers with the correct and necessary information. And it is the role of the Commission to work together with national enforcers to make this happen,” the commissioner said.

Responding to the EU investigation of consumer credit websites, Monique Goyens, director general of the European consumer organisation BEUC, said: “It is unacceptable that 70% of websites offering consumer credits checked by the EC do not comply with EU rules. Unless financial service providers change their practice and offer clear and correct information on the total cost, the duration of a contract or the type of credit, consumers will not be able to get credit which best suits them.”

"In these difficult times it is more important than ever that we ensure consumers are fully informed about the cost of credit. The Consumer Credit directive seeks to bring clarity to a sometimes opaque and confusing marketplace and it is right that the commission is seeking to enforce it, according to MEP Malcolm Harbour (UK; Conservatives & Reformists) chairman of the European Parliament's internal market and consumer protection committee.

Harbour added: "People should never be asked to take out credit without a clear understanding of all the costs and terms[…]. My Committee was already concerned about the lack of safeguards, and we are now collecting evidence for a major review of the EU Directive that will be started shortly."

A "sweep" is an exercise to enforce EU law. It is led by the EU and carried out by national enforcement authorities who conduct simultaneous, co-ordinated checks for breaches in consumer law in a particular sector.

The national enforcement authorities then contact operators about suspected irregularities and ask them to take corrective action.

Six countries (Italy, Estonia, Latvia, Lithuania, Slovakia, Sweden) conducted a deeper investigation on 57 of the sites checked – the Sweep Plus exercise.

  • By Autumn 2012: National authorities to report back to the Commission on progress with reprimanding websites in their jurisdictions
  • After Autumn 2012: Commission to publish an updated progress report

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